Jumia has been cutting costs since new management took over this time last year and numbers show that the e-commerce has made immense progress on that front. Year-to-date, Jumia’s adjusted EBITDA loss stands at $61 million, down by 61% from the first nine months of 2022; the company is projecting not to exceed $90 million by year’s end. So far, Jumia has suspended its first-party grocery offering, logistics-as-a-service and food delivery operations in specific markets where economic viability was deemed unsustainable.

However, of all the streamlining efforts, its exit from the food delivery business across seven markets was the most unexpected. Jumia Food comprised approximately 11% of the company’s gross merchandise volume (GMV) until Q3 2023. In addition, it was the fastest-growing category on the e-commerce platform and the second-largest category behind fashion in volume terms for years.

“When we announced our decision to discontinue food delivery, what I’ve tried explaining is that while it’s sad news because, at least internally, we were all quite emotionally attached to the service, and it’s been part of the family for a long time, it’s good news for the company as we continue to reduce losses,” Jumia CEO Francis Dufay said to TechCrunch in an interview.

While the decrease in losses is significant, it’s important to note that Jumia has already witnessed a substantial decline in active customers and orders compared to the previous year. This trend might persist with its exit from the food delivery business. In this interview, Dufay addresses how Jumia intends to navigate this, the company’s new focus on its core physical goods business and why it exited the food delivery market.

TechCrunch: Jumia’s statement last week said that the company’s food delivery business wasn’t suitable to its market’s operating environment and macroeconomic conditions. Can you explain what this means exactly?

Francis Dufay: We had two main business lines: e-commerce physical goods and food delivery. The physical goods business has consistently shown positive growth trends with healthy economics and fantastic potential. And in that segment, we believe that we know what to do to grow and we’re better than many competitors. On the other hand, with Jumia Food, we were fighting very hard in a difficult and extremely competitive market with many competitors having very deep pockets and being aggressive.

To me, it made little sense to continue, economically speaking. Some of these markets are small and crowded. While we had little upside potential, it required disproportionate efforts to maintain the business because of huge competition, operational complexity, management of many vendors and so on.

And so, since we’re a company with limited resources, we have to make choices. When I say limited resources, it means not infinite. At the end of last quarter, we had $147 million in the bank accounts. So we have resources. But as a CEO, I must decide where they will be better invested. So we decided to focus all our energy, teams, leadership and financial resources on the one big opportunity with a clear upside and where we know how to capture it and grow profitably: physical goods e-commerce.

Who were Jumia Food’s main competitors and what are your thoughts about the market? 

Across the whole continent, there are international players, such as Delivery Hero behind Glovo and Yandex behind Yango Delivery. And we expect them to keep on expanding across many more countries. Even though Bolt is leaving Nigeria and South Africa, Uber Eats and local players, such as Yassir in Northern Africa or Chowdeck in Nigeria, still exist.

In general, we saw over the past year that while we expected the market to become a bit more rational, it did not, surprisingly. Food delivery is a market with very low barriers to entry. You need an app that’s working somewhere in the world. But then you will always find restaurants that have already been educated about the business and are ready to join your platform any time. You will always find bikes and people to ride them. And you’ll always find customers willing to use the vouchers you distribute. So, getting into a new market is ridiculously fast; it’s just a matter of buying market share. I mean, I might be simplifying a bit, but the barriers to entry are usually pretty weak, making it a very unattractive business worldwide.

What do you mean the market wasn’t rational?

When a company advertises 30% off, including free delivery, you can be sure they’re losing money on every single order. It’s justified by the fact that they’re burning money to grow and buy market share. Many players are still very aggressive in how they look at the business and the markets, which results in unfavorable economics. The point is that it’s not short-term; it’s been this way for years across many African markets. And from what we’ve seen in competitive dynamics, it will remain this way for a long time because there will always be someone new coming into play.

That’s why we are exiting the segment and focusing all of our resources on physical goods e-commerce, where the dynamics are very different. We have very clear assets and barriers to entry, such as logistics footprints, which are very hard for competitors to replicate. The dynamics are also very different between physical goods e-commerce and food delivery across other markets.

Can you explain further?

We have an extremely well-developed logistics network in the physical goods business, with a mix of door delivery and pickup stations in many countries. We have our technology and partners that are often loyal and dedicated to Jumia. And any competitor coming in would need to build a distribution network. And that will take a lot of time. It takes a lot of adaptation. The dynamics across Africa are very different from the dynamics, let’s say, in Europe when it comes to logistics.

Aren’t you concerned about the further drop in users and orders on the platform? Also, how fast will the company grow the physical goods business to make up for this food delivery exit?

My thinking and my bet as a CEO is that by focusing all of our resources on one business line where we know we’re stronger, we should make up for the lost orders and customers faster with one business line with clear potential. We should make up for it, but I can’t give you a specific timeline as you can imagine. But that’s clearly the plan.

What are the items in the physical goods category that Jumia is optimistic about?

We’re seeing solid results in 2023 on phones and electronics, TV, appliances, home and living fashion and beauty; those are our core categories pushing hard. And we believe that focusing there will make up for the lost usage of Jumia Food. We already see very positive trends in five countries thanks to those categories.